Role in IT decision-making process:Align Business & IT GoalsCreate IT StrategyDetermine IT NeedsManage Vendor RelationshipsEvaluate/Specify Brands or VendorsOther RoleAuthorize PurchasesNot Involved

Work Phone:

Company:

Company Size:

Industry:

Street Address

City:

Zip/postal code

State/Province:

Country:

Occasionally, we send subscribers special offers from select partners. Would you like to receive these special partner offers via e-mail?YesNo

Your registration with Eweek will include the following free email newsletter(s):News & Views

By submitting your wireless number, you agree that eWEEK, its related properties, and vendor partners providing content you view may contact you using contact center technology. Your consent is not required to view content or use site features.

By clicking on the "Register" button below, I agree that I have carefully read the Terms of Service and the Privacy Policy and I agree to be legally bound by all such terms.

For Big Blue, What Comes Next?

In announcing its latest acquisition, analysts believe IBM is looking for new markets to grow its business, but the results are far from certain.

In less than three weeks, IBM managed to snatch up four software companies—Webify, MRO Software, FileNet and, most recently, Internet Security Systems.

The question is, How will these diverse acquisitions fit into IBMs overall growth strategy?

The acquisitions of Webify and FileNet are expected to increase the Armonk, N.Y., companys Information on Demand strategy, while MRO Software will help with asset and service management. And, the $1.3 billion purchase of ISS is expected to increase Big Blues global security services business.

ISS, based in Atlanta, is a maker of network security and appliances that specializes in intrusion detection and other systems scanning technology. Once the deal, announced Aug. 23, is complete, probably sometime in the fourth fiscal quarter, ISS is expected to be added to IBMs Global Services division and, IBM officials hope, give a boost to the companys security product line.

Like rivals Oracle and EMC, IBM has been using acquisitions to shore up its business and expand products lines within security and other spaces, while revenues from traditional, core sectors have slowed.

Most analysts believe that strategy will work for IBM, but there are some doubts.

"We believe the [ISS] deal makes strategic sense, though the price tag is likely to be interpreted as high," Bill Shope, an analyst with J.P. Morgan in New York, wrote after the $28-per-share ISS acquisition was announced.

"Nevertheless, it should contribute to growth in IBMs $17 billion software division, where, as we noted in June, the company has increasingly turned to acquisitions as a driver of business expansion," Shope said.

Others, however, are sounding a more cautious note.

"We think ISS MSS [managed security services] business and the X-force security intelligence research are logical complements to IBMs current business," wrote Garrett A. Bekker III, an analyst with Merrill Lynch in New York.

"We are somewhat unclear about the strategic fit of ISS appliance business, much of which consists of inline appliances that are essentially networking products," Bekker continued.

IBM seems, ironically, to be copying plays from one of its biggest rivals playbook. Over the past two years Oracle has grown from a database powerhouse to a database, middleware and applications juggernaut through 24 acquisitions.

Meanwhile, IBM since 2001 has added 39 companies to its software group alone, shifting earnings from its faltering services group over to its middleware group. IBMs third, fourth and fifth largest acquisitions—bought between this year and last—were purchased to bolster its on-demand strategy: The company acquired Ascential in March of 2005 for $1.1 billion, FileNet on Aug. 10 for $1.6 billion and earlier this week ISS. (The Software Groups top two acquisitions to date are Lotus and Tivoli, respectively.)

With the notable exception of some major plays in the ERP (enterprise resource planning) and CRM (customer relationship management) sectors with the acquisitions of PeopleSoft for $10 billion and Siebel for $5.8 billion, Oracle too has been working to build out the infrastructure side of the house.

The common thread in both companies acquisition strategies is building out infrastructure offerings around a services-based architecture.

"The FileNet acquisition was, we think, the real earth-shattering play in this space," said Brad Adams, a financial analyst with Boston Corporate Finance, in Boston. "FileNet was the leading content management and leading BPM [business process management] player that plays to a lot of things [IBM] has developed with its WebSphere strategy. So what weve seen is a lot of process-type applications coupled with integration. And now theyre layering security on top of that."

What is clear about the ISS acquisition is that IBM executives see a huge market for growth.

During a conference call, Val Rahmani, general manager of Infrastructure Management Services for IBM Global Services, and ISS CEO Tom Noonan said customers are looking for a solution that can head off security problems before a network is damaged or compromised.

Noonan said that customers are looking for security to be delivered across an on-demand platform, and that is what IBM and ISS are going to deliver.

IBM plans to sell ISS products to customers through the Global Services division, while the companys software will be sold through the Tivoli division.

In an effort to show that IBM is committed to growing its security business, both Rahmani and Noonan said that ISS 1,300 employees will remain after the deal closes, and the company will continue to call Atlanta home.

Asked directly about IBMs future and the possibility of additional acquisitions, Rahmani offered no specifics and a vague response.

"IBM is always looking at opportunities," Rahmani said.

John Pescatore, vice president of Internet security at Gartner, does not see IBMs latest purchase as just a random acquisition purely for the sake of revenue, but foresees some difficulties integrating some parts of ISS product line.

Pescatore believes that ISS managed services fit well with IBMs overall strategy, but the network security appliances, which fall under the Proventia brand name, will not be able to compete with established players such as Cisco and Juniper.

To make network security work, Pescatore said IBM will have to heavily invest in its channel partners or keep ISS as separate division, like it did with Tivoli.

"The network security products just do not seem like a good fit for IBM," Pescatore said.

/zimages/1/28571.gifCheck out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.